Correlation Between Ellington Residential and Redwood Trust
Can any of the company-specific risk be diversified away by investing in both Ellington Residential and Redwood Trust at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Ellington Residential and Redwood Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ellington Residential Mortgage and Redwood Trust, you can compare the effects of market volatilities on Ellington Residential and Redwood Trust and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Ellington Residential with a short position of Redwood Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ellington Residential and Redwood Trust.
Diversification Opportunities for Ellington Residential and Redwood Trust
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ellington and Redwood is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Ellington Residential Mortgage and Redwood Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwood Trust and Ellington Residential is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Ellington Residential Mortgage are associated (or correlated) with Redwood Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwood Trust has no effect on the direction of Ellington Residential i.e., Ellington Residential and Redwood Trust go up and down completely randomly.
Pair Corralation between Ellington Residential and Redwood Trust
Given the investment horizon of 90 days Ellington Residential Mortgage is expected to generate 0.94 times more return on investment than Redwood Trust. However, Ellington Residential Mortgage is 1.07 times less risky than Redwood Trust. It trades about 0.01 of its potential returns per unit of risk. Redwood Trust is currently generating about -0.12 per unit of risk. If you would invest 676.00 in Ellington Residential Mortgage on August 26, 2024 and sell it today you would earn a total of 0.00 from holding Ellington Residential Mortgage or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ellington Residential Mortgage vs. Redwood Trust
Performance |
| Timeline |
| Ellington Residential |
| Redwood Trust |
Ellington Residential and Redwood Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ellington Residential and Redwood Trust
The main advantage of trading using opposite Ellington Residential and Redwood Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ellington Residential position performs unexpectedly, Redwood Trust can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Redwood Trust will offset losses from the drop in Redwood Trust's long position.| Ellington Residential vs. Dynex Capital | Ellington Residential vs. Orchid Island Capital | Ellington Residential vs. ARMOUR Residential REIT | Ellington Residential vs. Ready Capital Corp |
| Redwood Trust vs. Blackstone Mortgage Trust | Redwood Trust vs. Omega Healthcare Investors | Redwood Trust vs. Medical Properties Trust |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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